Global FLNG Capex to total $37.6 billion

Westwood expects global capital expenditure (Capex) on floating liquefaction and import vessels to reach US$37.6billion over the 2018 – 2023 period. This represents a 66% increase compared to the total expenditure of US$22.6 billion over the 2012 – 2017 period. Despite near-term concerns due to the oil price downturn, total expenditure is expected to grow at a 6% CAGR (compound annual growth rate) over the forecast period, as operators take advantage of a competitive supply chain to sanction major projects. Over the forecast period, floating liquefaction Capex is forecast to reach US$26.4 billion, representing 70% of global FLNG expenditure over2018-2023.

Despite the challenges of cost overruns and delays to pioneering floating liquefaction projects, the success of these projects will set the foundation for the FLNG industry beyond the forecast period. Westwood expects the floating liquefaction sector to continue to gain traction, following the successful start-up and operation of the initial newbuild and converted liquefaction vessels. The operational success of these pioneering liquefaction projects is likely to lead to increased investor confidence, consequently increasing the number of projects that are sanctioned.

Africa and North America are expected to account for the largest proportion of floating liquefaction Capex, representing 72% of expenditure over the 2018-2023 period. Key projects expected to contribute to forecast expenditure in both regions include ENI’s Coral South FLNG unit (Mozambique), sanctioned Q2 2017, Komos Energy’s Tortue West FLNG units (Mauritania), and Fairwood Energy’s Delfin FLNG units (USA). The Delfin FLNG project is expected to consist of four semi-permanently moored FLNG vessels, with each having a production capacity of 3 mmpta. The proposed FLNG projects in the US are expected to have advantages over land-based export projects due to faster shipping times and fewer environmental concerns.

Over the 2018 – 2023 period, expenditure on import vessels will total US$11.2 billion. A global increase in gas consumption due to economic growth and fuel switching is driving the need to meet domestic gas demand. This in turn will lead to growth in import vessel expenditure over the forecast period. The challenges of declining local gas production are becoming more evident in certain regions, as some net exporters of LNG such as Australia and Russia will adopt the use of FSRUs to meet local gas demand in areas where gas pipelines are unviable.

Over the forecast period, a total of 20 countries are expected to have their first floating import vessels installed to help improve and diversify gas supply. Floating regasification units remain a popular option to meet growing gas demand because they provide short lead times from order to delivery, flexible contract options, as well as low construction costs compared with the alternative of a land-based import solution.

Given the strong fundamental drivers for the global FLNG market, some operators are looking to capitalise on the lower pricing and shorter lead times that are evident for oilfield services and equipment at present. Furthermore, some leasing contractors are taking advantage of shipyards’ spare capacity and competitive pricing to further expand their FSRU offering, as there has been reduction of approximately 19% in the cost for an average newbuild regasification vessel.